About Government Refinance and Home Purchase Programs

The efforts to resurrect the Hope For Homeowners program are in full swing now. The House already passed a bill designed to loosen requirements for the program and increase incentives for lenders to participate. The Senate just passed a similar bill today. The next step is for the two bodies to draft a melded final bill and push toward final votes. Here are some excerpt from a recent AP story on the subject:

Trying to curb home foreclosures, the Senate voted on Wednesday to make it easier for homeowners with risky credit to switch to a lower-cost mortgage backed by the government.

The bill, passed 91-5, also would give banks a break by encouraging reduced fees they must pay for the government to insure deposits.

While both steps put taxpayer money on the line, lawmakers say the legislation is needed to prevent the economy from getting worse.

…

The Senate housing bill would expand an existing $300 billion program called “Hope for Homeowners,” which encourages lenders to write down an individual’s mortgage if the homeowner agrees to pay an insurance premium. The program, which is set to expire in 2011, is intended to swap out a homeowner’s high-interest rate for a 30-year fixed loan backed by the Federal Housing Administration.

So far, the program has been a dud.

When it was established last year, Congress envisioned helping some 400,000 troubled homeowners. But because eligibility requirements were so strict, one borrower has completed the refinancing process

There was an article over at the WSJ on the ever increasing number of people who owe more on their mortgages than the value of their home. If you still have equity in your home and an interest rate of 6% or higher contact us today to look into a refinance.

Here are some excerpts from the piece:

The downturn in home prices has left about 20% of U.S. homeowners owing more on a mortgage than their homes are worth, according to one new study, signaling additional challenges to the Obama administration’s efforts to stabilize the housing market.

The increase in the number of such “underwater” borrowers comes amid signs that falling prices are making homes more affordable for first-time buyers and others who have been shut out of the housing market. But falling prices also make it more difficult for homeowners who get into financial trouble to refinance or sell their homes, and for others to take advantage of lower interest rates.

…

Real-estate Web site Zillow.com said that overall, the number of borrowers who are underwater climbed to 20.4 million at the end of the first quarter from 16.3 million at the end of the fourth quarter. The latest figure represents 21.9% of all homeowners, according to Zillow, up from 17.6% in the fourth quarter and 14.3% in the third quarter.

There was a useful article that came out in the AP this week on some details of refinancing into a lower mortgage rate. Here are a few excerpts:

Q: So, can I get a mortgage with a 4.78 percent rate?

A: Not necessarily. There are several reasons that borrowers may not get the low rates they expect.

First, consumers must realize that Freddie Mac reports average rates, which should not be thought of as a standard, industrywide number.

Second, a rate can change several times during the day due to fluctuations in the market — it could be 5.5 percent in the morning and increase to 5.75 percent in the afternoon.

Loan rates also vary by type. For instance, Freddie Mac’s survey showed Thursday that the average rate on a 15-year fixed-rate mortgage was 4.48 percent this week, lower than the 30-year fixed mortgage. And the size of the loan can affect the interest rate — “jumbo loans,” ones taken out for expensive homes, are becoming harder to get and carry higher rates than loans for $729,000 or less, for example.

…

Q: What if I manage to snare a mortgage rate in the 4.78 percent range — are there other costs to worry about?

A: There most certainly are.

One aspect of mortgages that can confuse borrowers is points, or fees. Points vary by lender: Some are paid at the time of application, others at closing. Higher fees mean more cost to the consumer, and could outweigh the benefit of a relatively low interest rate.

Some fees, like title insurance, are negotiable, so don’t be shy about trying to get them reduced.

Here is the pdf of the fact sheet on the new program announced yesterday to help people modify their second mortgages. Below are some important excerpts:

We estimate up to 50 percent of at-risk mortgages currently have second liens. By offering homeowners a way to lower payments on their second mortgages through our Second Lien Program, we may potentially reduce payments further for up to 1 to 1.5 million homeowners, accounting for up to 50 percent of participants in the Home Affordable Modification Program, as well as maximize the effectiveness of our first lien modification program. The program ensures that first and second lien holders are treated fairly and consistent with priority of liens.

…

These new details on the Second Lien Program and the integration of Hope for Homeowners mark ongoing progress of the Making Home Affordable Program in improving mortgage affordability for responsible homeowners and keeping more Americans in their homes.

…

For amortizing loans (loans with monthly payments of interest and principal), we will share the cost of reducing the interest rate on the second mortgage to 1 percent. Participating servicers will be required to follow these steps to modify amortizing second liens:

– Reduce the interest rate to 1 percent;

– Extend the term of the modified second mortgage to match the term of the modified first mortgage, by amortizing the unpaid principal balance of the second lien over a term that matches the term of the modified first mortgage;

– Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule;

– After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate;

– The second mortgage will re-amortize over the remaining term at the higher interest rate(s); and

– Investors will receive an incentive payment from Treasury equal to half of the difference between (i) the interest rate on the first lien as modified and (ii) 1 percent, subject to a floor.

For interest-only loans, we will share the cost of reducing the interest rate on the second mortgage to 2 percent. Participating servicers will be required to follow these steps to modify interest-only second liens:

– Reduce the interest rate to 2 percent;

– Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule;

– After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate;

– The second lien will amortize over the longer of the remaining term of the modified first lien or the originally scheduled amortization term, with amortization to begin at the time specified in the original contract;

– Investors will receive an incentive payment from Treasury equal to half of the difference between (i) the lower of the contract rate on the second lien and the interest rate on the first lien as modified and (ii) 2 percent, subject to a floor.

As part of the White House announcement today, news came out about attempts to revive the Hope For Homeowners (H4H) program. Hope For Homeowners was a program that was launched in late 2008 that allowed people to refinance into FHA loans at 90% of the current value of their home even if they are on the brink of foreclosure. Lenders would be required to write off losses on existing loans in cases where the value had dropped significantly but H4H was designed as a way for lenders to avoid having to foreclose on homes and lose even more money than the write off would cost. The problem was that lenders were not at all interested in writing off principal so the program was a colossal failure.

The Obama administration is this week announcing attempts to revive H4H in a workable fashion. See here from a recent article over at the WSJ on it:

The administration also announced a set of incentives for servicers and lenders participating in the

Hope for Homeowners program, which aims to restore homeowners’ lost equity by encouraging lenders to write down loan principal. The administration said it will take steps to incorporate Hope for Homeowners into its loan modification program. Servicers will be required to determine eligibility for a Hope for Homeowners refinancing and where it proves viable, the servicer would need to offer this option to the borrower.

While participation in the Hope for Homeowners program has been dismal, administration officials said they’re expecting strong investor interest as the program is wrapped into the broader federal loan modification program. The administration also said it supports legislation to strengthen the Hope for Homeowners program so that it can function effectively as a key part of the administration’s new housing efforts.

Changes to the Hope for Homeowners program are designed to place it in line with the taxpayer-assisted loan modifications. Launched last fall to help troubled borrowers refinance into more affordable government-backed loans, it has failed to gain traction due to onerous borrower requirements and the nagging problem of second liens.

The administration announced Tuesday a $2,500 up-front payment to servicers that refinance borrowers into the program. Meanwhile, lenders that originate the new loans will receive $1,000 a year for three years, if the loans stays current.

A gaping hole in most of the mortgage assistance programs to date has been the problem of second mortgages. While the current programs deal with first mortgages in a number of ways none of them dealt specifically with second mortgages — particularly in cases when the homeowner is underwater/upside-down (owes more than the home is worth) or late on the mortgage already. The Obama administration announced the first attempted remedy of that problem today.

Here are some quotes from a WSJ blog on the announcement:

The Obama administration unveiled a fresh set of incentives Tuesday for mortgage servicers to help strapped U.S. homeowners.

Under a new program, the government will pay mortgage servicers $500 up front and $250 a year for three years for successfully modifying a second mortgage, such as a home equity loan.

Second mortgages have complicated government efforts to help borrowers avoid foreclosure. According to the U.S. Treasury Department, up to 50% of at-risk mortgages have second liens and many properties in foreclosure have more than one lien.

Editorial:

Apparently the Countrywide brand has been so damaged the folks at BofA decided to rename it so America will forget how much the company contributed to screwing up the world economy. See an article on it here.

The strategy will probably work

There was a useful AP article published a few days ago that included some questions and answers. This seemed especially pertinent to this site:

Q: Should I wait to see if mortgage interest rates come down in a couple of months before applying?

A: Probably not, since mortgage rates are at historic lows.

Last week, rates on 30-year mortgages inched upward to 4.87 percent, but that’s still close to the lowest level in decades. Waiting for the rate to go any lower might backfire, said Ken Inadomi, director of the New York Mortgage Coalition.

Even introductory rates shouldn’t be that much lower than fixed rates these days — in some cases, they may even be higher. So it’s probably in your best interest to apply for refinancing now.

In case you decide to wait: The Making Home Affordable program expires on June 10, 2010.

We get this from HousingWire:

Bank of America, Countrywide Home Loans Servicing, Home Loan Services and Wilshire Credit became the eighth, ninth, tenth and eleventh firm to be pre-approved for TARP funds, under the Making Home Affordable loan modification system.

Simi Valley, Calif.-based Bank of America, will be allowed to draw up to $798.9m of government funds. Countrywide Home Loans has been promised a maximum of $1.86bn. Home Loan Services and Wilshire Credit can draw up to $319m and $366m, respectively.

The other seven servicers on tap to receive funds include Chase Home Finance (which was allotted the largest share thus far — up to $3.55bn), Wells Fargo Bank ($2.87bn), CitiMortgage ($2.07bn), GMAC Mortgage ($633m), Saxon Mortgage Services ($407m), Select Portfolio Servicing ($376m) and Ocwen Financial ($659m).

This growing list is good news for borrowers in serious trouble.

There was an interesting article in the LA Times recently noting that while more and more people in California are falling behind on their mortgages banks have not been foreclosing on people and evicting them for a long time in some cases. Here are some quotes:

More Californians are failing to make their mortgage payments than at any time in the last 20 years, but fewer of them are losing their homes, according to new figures. …

A default notice is the first step in the foreclosure process, and California homeowners received 135,431 of them in the three months ended March 31, MDA DataQuick of San Diego said Wednesday.

That’s an 80% increase over the previous three-month period and a 19% jump over the same period last year.

Meanwhile, the number of actual foreclosures, in which the home was repossessed by the lender, fell to 43,620 in the first quarter, a 6% drop from the last three months of 2008 and a 7.6% decline from the year-earlier quarter. Foreclosures peaked in the third quarter of 2008 at 79,511.

Much of the drop stems from a change in state law that made it more cumbersome for lenders to foreclose, DataQuick analysts said. That also led to procedural delays for banks and other lenders, which in many cases were not prepared to handle the additional paperwork.

The good news is that in most cases banks would very much prefer to work something out with struggling borrowers than foreclose. This is especially true in cases where the loan is greater than the current value of the home. The backlog of requests generally means that distressed borrowers may have more time than they expected to work something out with their lender.

There was an interesting and somewhat story over at Forbes.com recently. The gist of the story was that in may parts of the country home prices have a long way to fall still. Here are some quotes:

Based on historical balances of employment, housing sales, income, lending availability, foreclosures and vacancy rates, all dating back to 1982, home prices in the Los Angeles metro area still have 29% further to fall, according to Moody’s Economy.com.

If you still have any equity in your home and have an interest rate of more than 6% you may want to contact us now to see about refinancing to the current historic low rates while you still can.

We get these quotes from a recent Reuters article:

The Treasury Department is considering giving banks and investors billions of dollars in fresh incentives to modify troubled mortgages and save homeowners from foreclosure, sources familiar with official deliberations said.

Under one scenario, investors in second liens would receive a cash payment if they agree to ease the terms of troubled loans and accept a smaller return on their mortgage investment, the sources said. …

Officials also envision giving fresh subsidies to encourage ‘short sales’ in which the lender accepts a payment that does not cover the entire loan amount, according to the sources, who requested anonymity because they are not authorized to disclose details.

Fannie Mae and Freddie Mac, the mortgage finance companies, would administer the new program to resolve problems with second-liens under one plan being considered, they said.

A senior administration official declined to comment on Tuesday, but said the Treasury expected to unveil further details of its homeowner-aid program “soon.” …

In testimony before a congressional bailout oversight panel on Tuesday, U.S. Treasury Secretary Timothy Geithner said the Treasury was working on additional measures to keep struggling borrowers in their homes or provide them with “less damaging ‘exit strategies’ from homes they are clearly unable to afford, even under favorable mortgage terms.”